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Monday, April 02, 2007

ISM Manufacturing

The street did not like this report - it produced an almost immediate 40 point drop. Maybe they had their hopes up after the Chicago report last week, which showed a sharp rise. I thought that was probably mostly farming induced.
The index is at 50.9, which means a slight manufacturing expansion.

Manufacturing employment was negative at 48.7 - big surprise. It does look quite inflationary - prices shot up 6.5 to 65.5.

Some favorables - imports dropped and exports rose. Customer inventories dropped 5 to 48.

Mama Mia, what's happened to MaMa! Long time no see. "Sleep Programing"? Hope all is well and looking forward to the resumption of your informative and provocative postings.
I would be interested in your thoughts about the independent variable (i.e. cause) of inflation.

In the comment section of Calculated Risk a fellow wrote:
"High inflation requires labor costs to rise a lot. Something, for the most part, not available to US workers. Failing rising wages, hyper inflation cannot happen."

"So as foreign prices rise, folks cannot pay for it, having exhausted both the home ATM and Credit card options, because wages cannot rise fast enough. Demand drops here and abroad with the result of a recession and deflation."

If I understand him correctly, he equates inflation with wage pressure. However, it seems that one can make the arguement (a la the chicken or the egg) that increased prices cause increase wage pressure. If prices go up, workers need more money and demand higher wages."

Further, he precludes wage pressure as "Something, for the most part, not available to US workers." I assume he means off-shore competition. However, there is a political dimension to wages. I highly militarized work force resulting from decreasing standard of living is not something that the FED or congress would want to see - I should think. They could then increase the money supply to meet wage demands.

What do you think?

Thanks in advance for your thoughts.
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